Owning a home in California comes with its many benefits, such as the privacy, weather and of course, the amazing tax breaks. But as every year goes by however, many factors regarding tax returns can change quickly. Thus, it is vital to always keep up with the changing factors. We have outlined the top four factors that could possibly cause a little bump in the road while filing your taxes this year.
1. Different Mortgage Interest Deduction
Although mortgage interest is tax-deductible, the deduction has been adjusted for the year 2020. The deduction is limited to interest on up to $750,000 of debt ($375,000 if you’re married filing separately) instead of $1 million of debt ($500,000 if married filing separately).
If you took out your mortgage loan before December 15th, 2017, the rule change most likely will not affect you. To add, there’s an exception for homeowners who were under contract to purchase a home before December 15th, 2017 – as long as they were scheduled to close the deal by January 1st, 2018. You must also note that the law treats refinanced mortgages as if they developed on the old loan’s date. This means the old limit of $1 million still applies.
2. Capped Property Tax Deduction
In 2020, the deduction is subject to a total cap of $10,000. This includes property taxes plus state and local income taxes or sales taxes paid during the year ($5,000 if married filing separately).
3. New Rules for HELOC Deduction
This year, new rules focused on home equity lines of credit, or HELOCs, have the potential to affect whether the interest on those loans is tax-deductible. With these new rules, you can now deduct HELOC interest only if you used the HELOC money “to buy, build or substantially improve the taxpayer’s home that secures the loan,” as stated by the IRS. Basically, if you used the money to improve your home, you are eligible to deduct the interest.
4. Moving Expenses Not Deductible
In the past, homeowners were able to deduct any costs related to moving. However, with new tax rules in 2020, moving-expense deductions are largely limited to military members.